Interview with CEO Pt 1- Exchange Explained

John Blank

Chief Equity Strategist
Zacks

Economist for TV networks
(such as CNBC)

Interview Transcript

Ross Cooper, CEO
Modern Cinema Group, Inc.

With
John Blank

October 2017
Part One

Exchange Explained

 

 

Ross Cooper

CEO
Modern Cinema Group, Inc.

(Ticker Symbol:MOCI)

 

 

Interview Transcript ( Part 1):

John Ross, thanks so much for being here today!
Ross It’s my pleasure.
John Let’s jump right in. Why don’t you provide us with some context regarding Modern Cinema Group and the things you’re doing.
Ross Sure. Although the things we’re doing may appear to be new, they’re actually not so new. The fundamental building blocks were developed about ten years ago and these building blocks have been used as the basis for one or two alternative models. But I’m happy to explain our unique model and vision at a high level.
John This project is your brainchild, right? You designed this system and patented it yourself years ago, right?
Ross That’s right. I came up with this concept with help from senior personnel at Fox and others around Hollywood. But yes. I’m the one who put the puzzle pieces together and then wrote and filed the original patent application; the patent issued in 2011. I recently filed for more patent protection this year and have a continuation that I plan to file before the end of the year.
John Understood. Okay. Let’s start at the beginning. Tell us about Modern Cinema Group and the things you’re doing.
Ross At the core of Modern Cinema Group you’ll find a “futures” exchange that is carefully crafted to list individual media titles (such as movies, TV shows and electronic games) rather than commodities (such as crude oil, wheat or gold). The reason for using a “futures” model rather than a stock exchange is because media titles are similar to “futures” . Media titles and “futures” both act like bubbles. They appear out of nowhere. They can grow very quickly, and then they are placed on someone’s shelf. Therefore, the “futures” model is well aligned with the distribution arc of individual media titles.
John Although I understand what you’re doing, others would ask if a stock market model might offer more benefits overall. Are you sure a “futures” exchange is the best way to go?
Ross When it comes to movie studios and companies that own the rights, the stock market is right, but we are looking to sell rights to individual movies. The stock market does not allow for this unless we create companies for every movie. Although the stock market is great for companies, stock markets don’t have the same level of urgency for their more perishable underlying assets. They don’t have the same level of product granularity such as a single motion picture. They also don’t routinely start and stop like commodities.
John True.
Ross Several motion picture portfolios were listed on securities exchanges in the past, but they have not performed well. The volatility in “futures” contracts is much greater than for typical stocks, and it’s this increased volatility that allows for more ways for producers and distributors to gain advantages. For example, it doesn’t help a producer if a stock goes from $40 at the start of the year to $42.5 by Christmas. If dozens of contracts can be traded that have more dramatic arcs, then strategies such as straddles, strangles, swing trades and calendar trades can be used to profit from the exchange in ways never seen within the media industry.
John Where will the liquidity come from? Who will the speculators be?
Ross It will take some time to develop significant liquidity, however we envision currency traders will jump on-board. They’re actively looking for financial products like this and they like the movie business as well. We except a great deal of money to initially enter the market from China (directly or indirectly). Then we should see more balanced trading from around the world. As you know, a normal day in the currencies market is $1 trillion, and that’s considered normal.
John Yes, I know. It’s the largest market for “futures” by a long shot. So you must be creating some sort of derivative from the equity component from individual media titles, and then listing these components on a “futures” exchange. Then you’re offering these contracts to currency traders as a new product for their portfolios.
Ross Exactly. That’s what we’re doing. Technically we call this the trading of small-lot, fungible, on-exchange content ownership and license rights using standardized contract specifications. Sorry it’s a mouthful.
John I get it. What are the major benefits to the industry?
Ross Let’s talk about the media business in general terms. There are three massive problems that are interrelated, and all three problems can be solved if only a symbiotic relationship can be established. Here are the three problems:

  1. Highly qualified producers (with few exceptions) find it very difficult to raise money
  2. Distribution partners find the cost of media content to be prohibitively expensive and things only get worse as production costs continue to spiral out of control.
  3. Promotional campaigns are almost always smaller than they should be (which often results in disappointing revenue numbers)

I’d like to provide a disclaimer here. Many people hearing this statement for the first time might disagree. There are certainly exceptions. But these three problems resonate with most people within the industry.

John Fair enough.
Ross I’ll get to the point. Here’s the symbiosis:

If distribution partners can become equity owners in the media titles they distribute, and these media titles tend to be profitable, then the new revenue streams that are derived from the equity ownership can be used to off-set the cost of content acquisition And one more thing: Distribution partners almost always engage in advertising. These distribution partners can further use ad “avails” as currency to off-set the cost of content acquisition, which means the media titles themselves carry pre-purchased global ad spots for the purpose of launching larger and more effective campaigns
John Wow! Got it. If distribution partners (like streaming services, telecoms or even satellite and cable) can own equity in the content they distribute, then they can offset their cost of content acquisition – assuming the content they choose is ultimately profitable.
Ross Right. That’s fundamental assumption. They would choose to distribute the most popular content titles which, by definition, would be the most profitable in aggregate. Maybe not title by title, but certainly in aggregate.
John Then… distributors advertise. So there’s an additional facility that allows them to turn advertising spots into currency that can be used to further reduce the cost of content acquisition. And these ad spots are then used to promote the individual media titles once they’re released.
Ross That’s it. That’s what we’re doing.
John Have distribution partners ever owned equity in the titles they distribute? Is this a familiar concept to them?
Ross The large platform operators engage in media development and production all the time. For example, Comcast owns Universal Studios. This was the case at Fox when they were a major owner of DirecTV. But for the hundreds if not thousands of smaller platform operators (streaming, mobile, satellite, cable, etc.), the answer is a virtual no. They may invest in local or even regional content titles from time to time, but they have no ability to purchase equity ownership in “hot” new titles with significant budgets and known movie stars.
John Have distribution partners ever owned equity in the titles they distribute? Is this a familiar concept to them?
Ross The large platform operators engage in media development and production all the time. For example, Comcast owns Universal Studios. This was the case at Fox when they were a major owner of DirecTV. But for the hundreds if not thousands of smaller platform operators (streaming, mobile, satellite, cable, etc.), the answer is a virtual no. They may invest in local or even regional content titles from time to time, but they have no ability to purchase equity ownership in “hot” new titles with significant budgets and known movie stars.
John Not bad. So tell me about your progress so far.
Ross As you may have seen from some recent press releases, we signed an important partnership agreement with The Pride Group based in Dubai and Pride Holdings based in Chicago. Pride is well-known for launching “futures” exchanges around the world. Their specialty is currencies, however they trade traditional commodities as well. We are working with The Pride Group to launch a first-of-its-kind media “futures” exchange before the end of this year.
John That sounds aggressive.
Ross It is aggressive. But we have a number of exciting projects lined-up already and we need the exchange launched as soon as possible.

Our plan is to run a test in November. We have a producer based in Scottsdale Arizona and a large and well-known streaming service based in Southeast Asia. We have a Market Maker in Jakarta Indonesia and at least two brokers for the test. We plan to publish press releases for all aspects of this test. For now it’s safe to say that we have all of the puzzle pieces we need to run our first test.

John Assuming the test is successful…
Ross It will be. For sure. We’ve planned it very carefully. Not much can go wrong.
John I’ll take your word for that. So how will the Southeast Asian streaming service use the exchange?
Ross It’s very simple. They go on-line, and purchase one or more “futures” contracts. That’s all. A user-friendly interface guides them through the process. They can purchase equity only, distribution rights only, or both. We will soon have a downloadable App as well.
John You mean a buyer can purchase equity and distribution rights, on their phone?
Ross Yes. That’s the way it works. It’s very powerful and at the same time, easy to use.

But it’s important to note that advantages will be gained by those who know how to trade and hedge. We plan to offer on-line classes that teach people how to purchase equity, non-exclusive licenses, exclusives, hold-backs, language rights and complex combinations. Traders can also sell contracts to simply make money should the contracts increase in value. And the best part, this is all done on-line. Not at trade shows or over the phone.

John Then what?
Ross We’re working on our first production. It’s an excellent project for international audiences. I’d love to disclose it all to you right now, but I’d certainly get myself into trouble. We’re working with one of the biggest and most successful producers in Hollywood. The project itself is ideal for the exchange and I’m doing everything I can to rush it into production.
John Then what?
Ross Then more and more. I hope it’s okay to say we have plans for the 2018 World Cup and other projects as well.
John “Live” TV?
Ross Yes. We can list any media assets. “Live” TV, games, episodic TV… everything! Chinese co-productions will soon become important to us as well.
John Sounds exciting.
Ross Yes. We’re thrilled. Busy and thrilled.
John I’ll bet. Wow! That’s a drink from a fire hose. I’m sorry to say that’s all we have time for today. Can you come back soon for a follow-up?
Ross Yes! I’d love to.
John Great! Let’s do it!
Ross I look forward to it. Thanks for having me. By the way, I always enjoy watching you ring the bell on the floor of the New York Stock Exchange.
John Did you see that?
Ross Yes I did. You’re a rock star!
John Funny… Thanks Ross!
Ross Thank You!
 
  About John Blank

John Blank, Zacks Chief Equity Strategist, writes frequently, nationally and internationally. He has lately become an expert on publicly traded stocks, and serves as the editor of the daily Zacks Large Cap Trader newsletter and previously, on the International Trader. He re-publishes industry articles for Modern Trader magazine too; and opines on monthly macro and top-down investment strategy, and forecasts for global financial markets — for Zacks Premium and Zacks.com. These reports can also be found on Fidelity.com.

In this role, he jointly advises the investment management arm, termed Zacks Investment Management (ZIM). This group manages over $5 billion in assets. He writes their Zacks Stock Market Outlook report. John appears frequently on national TV to discuss individual equities, stock markets and the global economy, mostly with CNBC. At a TV studio near his home in Venice, CA, he shares televised views, drawing on Zacks latest Top-down Investment Strategy & Asset Allocation report, the Global Macro Consensus, a U.S. Economics outlook, and the latest CIO Survey insights.

John earned his PhD. in economics from M.I.T. and has a B.A. with honors and distinction in Mathematics for the Social Sciences from Northwestern University.